Beyond Whitewater
Adams, James Ring
James Ring Adams Beyond Whitewater A look into the account books of Madison Guaranty, the S&L run into the ground by Clinton pal James McDougal, shows that the president has more to hide than...
...adding up the realestate tax stamps, one would conclude the sale price was $2,000...
...The first was the suicide last July 20 of deputy White House counsel Vincent Foster, who was also the Clintons' friend and personal lawyer...
...Although the letter from Rose was pointedly not signed by Mrs...
...The Clintons could easily have lost the money they said they did, says Wade...
...So pending the outcome of new investigations in which he was recently subpoenaed, he is innocent in the eyes of the law...
...In 1979 Governor Clinton wanted to introduce a small claims court to Arkansas, and after the requisite legislation was passed Hale was appointed to the Pulaski County Municipal Court to head the small claims court in that county...
...The two Whitener accounts were overdrawn by nearly $400,000 when the bank tried to clean them up in February 1986...
...After political chit-chat, they turned to McDougal's loan...
...Although McDougal's memory generally loses its edge whenever Clinton is involved, he said the episode stuck in his mind because he kept worrying that Clinton's sweating might damage his new leather chair...
...Weeks of in-depth James Ring Adams is the author of The Big Fix: Inside the S&L Scandal (Wiley) and co-author (with Douglas Frantz) of A Full Service Bank: How BCCI Stole Billions Around the World (Pocket Books...
...This constant circulation of overdrafts will work, however, only if you can keep some of the accounts out of the sight of the regulators...
...Thrift money began to flow into The American Spectator February 1994 51 McDougal's own real-estate projects, most of which were doomed from the start or managed into disaster...
...He talks with great feeling about the satisfaction of giving ordinary citizens a stake in the judicial system...
...Clinton's connection with McDougal warns that he learned exactly the wrong lessons from this episode...
...Instead of getting the point, the White House recently distributed a report by Tate, blasting the deficiencies of the RTC...
...In 1980, he took over the Bank of Kingston in the northwest corner of the state and in 1983 bought the ailing Woodruff Savings and Loan, based in Augusta, across the White River from Bradford...
...But it would be a serious scandal if he allowed his position to interfere with enforcement procedures designed to protect the public—in short, if he joined in a fix...
...McDougal was a hometown boy who made good, a native of Bradford who had gone away to college and a career as a staffer on Capitol Hill...
...When the pavement runs out, you know you've gone several hundred yards past the gravel driveway that runs across the creek and up the rise to Freddy's house...
...instead of deregulation, they provided a government subsidy for foolish investments...
...According to later reports, McDougal arranged to have the plane sold to Seth Ward, a prominent Little Rock businessman and co-investor in a Madison Financial real-estate deal who happens to be the father-in-law of Webster Hubbell, Hillary's former Rose Law Firm partner who now represents the White House at the Justice Department...
...In the aftermath of Vincent Foster's suicide, the national press corps crowded into the records vault at the cubical brick Marion County courthouse, wondering why they were there...
...Its clients included the largest corporations in the country, let alone Arkansas...
...As for Whitewater profits, well, the mortgage is paid off, except for some escrow funds, but whatever Wade made didn't help his business...
...The lead professional at the securities department's savings and loan division, Charles Handley, was unpersuaded...
...On October 14, 1980, the Whitewater partners sold it to Chris V. Wade and Associates...
...It gave her name as well as Massey's as someone to call "should you require further information or assistance...
...A month later, the account falls back into a near-$6,000 overdraft, and stays overdrawn by thousands until March...
...When his prosecution went on fast track and the Justice Department ignored his offers of information about Arkansas corruption, Hale decided that he was indeed the fall guy and started talking to the press...
...for $35,000...
...And the Clintons were definitely passive investors...
...But no one could really have foreseen the disaster that followed...
...Although the federal government lacks legal authority to close them, it does have tremendous influence through federal deposit insurance funds...
...But she looked good in hot pants," he added...
...Clinton and McDougal were dressed casually, he says, and he remembers McDougal's dark green Jaguar in the parking lot...
...McDougal made the statement that that was all taken care of...
...One problem loan of $45,000 was drawn to Stephen A. Smith, a political scientist with a polling firm called The Communications Company...
...As the advertising specialist, Susan made some memorable television commercials for Jim's real-estate ventures, riding in hot pants on a white horse...
...It could well be that Hale's "clean-up" loans went toward sanitizing the books on Whitener...
...Campaign Funding Hale's story does contain a major difficulty...
...Hale wrote to Worthen, asking about the status of its lien, but the bank seemed determined to wash its hands of McDougal...
...She announced her decision in a May 14 letter that could be read as a sly dig at the governor's wife...
...Jim had a lot of lots sitting there that wouldn't sell," he said...
...He admits that he was blinded by his hopes to make a bundle and that he put too much trust in the wrong person...
...This combination of jobs and land value made the Game and Fish and Highway Department axis one of the most powerful in state politics...
...The FHLBB forced McDougal out of the management and imposed a severe Cease and Desist order...
...The 54 The American Spectator February 1994 Home Loan Bank summoned Madison's directors to Dallas for a June 21 meeting, and the Arkansas thrift supervisor, Lee Thalheimer, piled on with a letter calling the violations "very serious...
...Later, says Hale, McDougal called him and asked that he increase the $150,000 loan for Susan to $300,000...
...In 1990, he stood trial along with two of Susan's brothers for fraud and misapplying funds in connection with the purchase of a building in the Castle Grande project...
...as he best remembers, she said, "Mr...
...Clinton, in his first term, in 1979-80, played the game...
...The 1986 examination discovered that he was using the deals to fake the thrift's earnings...
...Freddy signed everything McDougal put in front of him...
...McDougal himself underwent something of a breakdown that saw him briefly hospitalized, although the problem, he told friends, was later diagnosed as impaired blood flow to the brain...
...He was acquitted...
...On June 25, 1984, the thrift's lawyer, John Selig, asked for authorization for the partnership with Freddy Whitener...
...Whitener and Associates Freddy Dean Whitener lives in a battered mobile home six miles out of Bradford, pop...
...Evan Fitzmaurice helped in the research for this article...
...These are money trails that independent counsel Fiske should immediately start tracking...
...She asked for this authority to wrap up Whitewater Development's affairs by the end of the year, but there is no sign that Jim or Susan granted it...
...He has recently emerged from Chapter 11 bankruptcy...
...Although he currently awaits trial on federal fraud charges, it's hard to imagine him as the mastermind of a criminal conspiracy...
...He remembers sitting as a youth in a smoke-filled room as ex-Governor Orval Faubus discoursed on his misunderstood political career...
...Professionals at the Arkansas securities department were doubtful...
...But the Madison Guaranty account fell largely to a securities-law specialist named Richard N. Massey...
...One can also ask whether any of these revelations will ultimately affect President Clinton's ability to do his job...
...interviews with several key participants and the study of several thousand pages of documents have provided The American Spectator with the beginnings of a reconstruction of the secrets of these files...
...The separate funds for banks and savings and loans (a different legal entity) rely on federal examiners to check the condition of their members, and the federal supervisors can generally force a state to shutter an offending state-chartered institution by threatening to cancel its federal deposit insurance...
...The pattern starts in 1980, when Clinton lost his first re-election campaign...
...The Rose firm decided to nudge along the process with an unusual letter dated April 30, 1985...
...Whitener, you should think more and talk less...
...This agency is one of two given autonomy by the Arkansas constitution...
...The correspondence continued well past October...
...Tate created such an outcry by his apparent attempts to steer profitable contracts to his friends that he was forced to withdraw his name even before his confirmation hearings...
...But, said the examiner, McDougal would record the full sale price as a done deal and add it to Madison Guaranty's profit...
...During Clinton's first term as governor, Smith was his administrative assistant...
...The stock purchase had been funded by a $70,000 loan from the Stephens-controlled Worthen Bank in 1981...
...In 1987 Freddy decided that he should finally get hold of his checks, which hadn't been sent to him in eighteen months...
...The last words he said to us," says Freddy, "were, 'It was Gold Mine Springs that did me " Madison Guaranty Savings and Loan James and Susan McDougal are so central to what is known as Whitewatergate that it is surprising the national press has glossed so lightly over their characters...
...en Bassett took office, she continued to deal with her former law firm (although her name no longer appeared at the top of the right-hand column on its letterhead...
...I hired Hillary because Bill came in whimpering they needed help," McDougal said...
...It was the fall of 1985...
...But sometimes he will walk down the hill past an older son's house and just sit a spell on the log wall next to the long one-story home that the Resolution Trust Corporation took from him two years ago...
...The suicide of Vincent Foster came on the same day that the FBI issued a search warrant for Hale's office...
...James Ring Adams Beyond Whitewater A look into the account books of Madison Guaranty, the S&L run into the ground by Clinton pal James McDougal, shows that the president has more to hide than anyone suspected...
...These cashier's checks turned up at the Clinton campaign account in the Bank of Cherry Valley, which recently received a federal subpoena in the Whitewater affair...
...Hale was waiting for a ride at the state capitol when Clinton came by and asked if he was going to help Jim out...
...He had signed some 50 The American Spectator February 1994 notes because McDougal told him to, but others weren't even in his handwriting...
...Some stranger seems to be following Freddy's current business, however...
...Somewhere in this time, the access road to Whitewater was approved...
...That was about the lowest point...
...In the early seventies, McDougal left politics to manage real-estate investments with his father, while Clinton returned to the state to start his own public career...
...But he is now floating a major proposal to reorganize bank supervision, consolidating the patchwork of existing agencies into one bank panel...
...Hale wasn't sure what needed cleaning up, but he began to work on a series of loans...
...McDougal seems to have used his subsidiaries to the same effect...
...Hale learned, much later, that McDougal's purchase of Madison Bank and Trust, the former Bank of Kingston, had been similarly financed by a $390,000 loan from Union National Bank of Little Rock, which in 1993 merged with Worthen Bank...
...Even national reporters would lose interest and close up their notebooks when he told them that none of his papers mentioned Bill or Hillary Clinton...
...The problem was compounded by widespread political interference on behalf of the worst elements of the financial industry...
...I t is certainly the case that the Whitener account became one of Madison Guaranty's dark secrets...
...They were perturbed that the bank, in an apparent effort to hide its weak condition, had begun switching some of its problem loans into McDougal's thrift, Madison Guaranty...
...since he was born at home, he was able to add a year or two to his age when he finally applied for a birth certificate...
...Overdrafts were building up, and the Home Loan Bank Board was waking up to the national thrift disaster...
...One of the flakiest projects amounted to a tribute to McDougal's hero, Franklin Delano Roosevelt...
...Hale says it took him into the new year to prepare the paperwork...
...But a deposit of $30,000 doesn't show up in the Whitewater Development account at Kingston (Number 0001-040-5) until December 29, 1980...
...Many of these, from Silas Deane to John Dean, exude a shifty, self-serving, definitely unpalatable character...
...But Hale wouldn't take it, judging Whitewater's location as too remote...
...Two events brought the furor to this point...
...He moves his headquarters out of the backwoods into the nearest financial capital and then plunges his pot of gold into the wildest financial schemes he and his friends can concoct...
...Buried in the files at the Arkansas Securities Commission is a March 1984 memo from the Federal Deposit Insurance Corporation, which insures banks...
...It was the worst mistake Freddy ever made...
...Yet the elaborate research and nitpicking may divert The American Spectator February 1994 53 attention from a massively obvious question...
...Four years after McDougal took control in 1983, deposits at his thrift had swelled from $6 million to over $123 million...
...One Whitewater resident who owns three lots pays taxes on one of them himself...
...Their friendships 52 The American Spectator February 1994 grew to include their families...
...Jack had the national fundraising contacts, first as Democrat then as Republican...
...Around then, McDougal also asked him for $150,000 for Madison, and mentioned that his thrift had a federal examination coming up...
...The Keating Five scandal and the resignation of House Speaker Jim Wright were only two of the most lurid examples...
...7/ © 1994 The American Spectator All Rights Reserved Clinton, Whitener, and Us One could say that this reconstruction relies on a very narrow window into Madison Guaranty...
...the payee on all these checks was Madison Guaranty Savings and Loan...
...A country boy charmer with a sharp mind, the Washingtonveteran had decided to build an Arkansas banking empire...
...Management didn't bother determining feasibility, relying instead on McDougal's "intuition...
...Too many gaps still pock the record, and even the Wades may not know what's missing...
...This might be true, if the habits and attitudes that Clinton displayed then toward financial regulation were not such bad omens for current policy...
...The other is the Highway Commission...
...As readers of The American Spectator already know (see my "Clinton's Bert Lance...
...To keep alive a "Ponzi scheme," which was the essence of the fast-growing thrifts of the 1980s, you have to bring in new investors to pay off the old ones...
...Basically a two-page closely reasoned legal document, it ended with a subtle reminder of Hillary Rodham Clinton's involvement...
...may lead in entirely different directions...
...McDougal's thrift, now called the Madison Guaranty Savings and Loan, put up the down payment...
...I didn't like it...
...But if one thing distinguishes Hale, it is a kind of open innocence...
...Freddy contributed the sweat of his whole family as equity, calling his children out of college to help clear the building lots and lay down the roads...
...One was to help McDougal with the Campobello project...
...They raised their six children there, adding rooms as they saved some money...
...in the October 1992 TAS), they were the state's king-makers...
...But there is no doubt that Hale wrote a check for $300,000 to "Susan H. McDougal, d/b/a Master Marketing...
...Madison Guaranty gave full financing for each flip, ultimately disbursing $190,000 for a building that originally cost $45,000...
...Some of the deals involved classic "land flips," in which friends sell a parcel back and forth among themselves, inflating the price each time to qualify for higher and higher bank financing...
...The Road to Whitewater Bill Clinton's friendship with Jim McDougal traces to 1968, when the future president, then a college student, volunteered to help the re-election campaign of U.S...
...And I had an airplane I didn't want...
...He opened a branch in Bradford, giving many local people access to bank credit for the first time...
...Hale himself found not only that his "clean-up" loans were worthless, but that his knowledge of McDougal's finances would be costly...
...It was this loan, among others, that had prompted the FDIC to alert the thrift regulators about McDougal...
...The Whitewater account at Madison Guaranty shows some curious activity in October 1984, which left it with an overdraft of nearly $18,000...
...Major financial frauds like the Bank of Credit and Commerce International (BCCI) manage this magic trick by maintaining a parallel institution inaccessible to the auditors...
...His solution, it appears from the Whitener books, was to kite checks...
...he attended John F. Kennedy's inauguration and sat next to Lena Horne at the inaugural ball...
...His defense lawyers argued, among other things, that his financial midjudgment was a symptom of mental disorder...
...By 1986, according to a federal thrift examiner, the "economic justification" for these projects was "questionable...
...In Jim McDougal's case, the political patron was Bill Clinton...
...A die-hard Democrat who could mimic FDR's radio "fireside chats," McDougal heard that land was available on Campobello Island, Roosevelt's summer retreat between Maine and New Brunswick...
...He bought a few hundred acres of raw land, platted it and put in access roads, and retired the mortgage as he sold off the lots...
...From there, they drove to meet McDougal at Castle Grande, a low-cost residential development that was one of McDougal's Little Rock investments...
...When they talked about security on the loan, Hale says Clinton mentioned that they had an interest in land in Marion County, the location of Whitewater Estates...
...When they asked him what he was doing, he said, "Just doodling...
...Witt") and Jackson Stephens owned the largest private brokerage firm outside of Wall Street...
...Freddy was 15 when they wed...
...he frantic maneuvering with Hale's loans failed to T fool the thrift examiners...
...He moved from Augusta to a rundown historic section of Little Rock called the Quapaw Quarter and renovated a block-long commercial building as his headquarters...
...What in these files so upsets the Clinton administration...
...His trial was originally scheduled to start on January 28, an extremely rapid pace, and so far Hale has been able to obtain only a month's postponement...
...If the commission accepts, it will undertake to build an access road to the ramp, using federal Marine Fuel Tax funds disbursed by the Highway Department...
...All of these matters need special attention from independent counsel Fiske...
...But it played a dominant role in the state, too, representing the Arkansas Gazette Company, Wal-Mart, and, above all, Stephens, Inc...
...Hale doesn't remember the exact words,but he is sure that McDougal used the phrases "political family" and "clean up...
...The net worth of the thrift had always fallen short of the required minimum, even with McDougal's enthusiastic bookkeeping...
...If this suspicion pans out, it may turn out that Freddy Whitener lost his house to help pay Bill Clinton's campaign debts...
...But Thalheimer seemed reluctant to act quickly...
...The federal regulators smelled a rat at Madison Guaranty almost from the beginning...
...Some fifty to one-hundred Madison employees and stockholders gathered and contributed about $35,000...
...Afterward, he would call and thank them for taking care of her...
...The record already shows that Clinton has a massive blind spot on what constitutes appropriate behavior for a financial regulator, or a governor who appoints the regulators...
...But by puffing up the profits, McDougal fooled the regulators into allowing him to continue tripling his deposit base yearly...
...Jimmy Carter's double-digit interest rates were eating up all the real-estate profits back then...
...But the new commissioner went ahead with the approval...
...But for heavy-duty work, McDougal turned to the Rose firm, which he was now paying anyway...
...These bipartisan bills distorted the incentives of the regulatory system...
...The donation was contingent upon construction of a fishing access ramp at the Ranchette development, near Whitewater Estates...
...This offer revealed another anomaly...
...In 1974, as a young lawyer in Little Rock, he became president of the national Junior Chamber of Commerce...
...Another series of checks doled out more than $30,000 in one week to companies controlled by Jim McDougal's young wife Susan...
...If the sucker money is cut off, you have a severe cash-flow problem...
...The regional director of the FDIC considered it serious enough to draw to the attention of the president of the Home Loan Bank of Dallas...
...But one can easily see him getting in trouble from an eagerness to oblige and be helpful...
...Under its previous name, Bank of Kingston, it had lent Hillary Clinton $30,000 to build a house at Whitewater...
...The real significance of the Whitewater Development, a partnership composed solely of the Clintons and the McDougals, is that it shows Bill and Hillary in such close association with two alleged sociopaths...
...This happened to coincide with the start of the federal examination that McDougal mentioned to Hale...
...One coincidence made reporters, at least, highly interested in listening...
...He invested nearly $4 million for a vacation resort even though the examiner noted that it was a threeand-a-half-hour drive from the nearest airport and that roaring tides twice a day opened a mile of mud flats between waterfront lots and the ocean...
...On the rare occasions when she visited Gold Mine Springs to film a commercial, he would call ahead to the Whiteners and ask them to have her favorite sandwich ready...
...Whatever Bassett's subconscious intention, this exchange has become a major embarrassment for the First Lady, as direct documentary evidence of her legal work for McDougal...
...His office is still comfortable, but a far cry from the firm of several branches that he was running when McDougal first walked in his door in the late seventies...
...On August 2, the foursome bought 230 acres along the White River from 101 River Development, Inc., a local partnership that was splitting up a larger parcel...
...His first effort worked out...
...His shares also secured a later loan of $142,186 from Worthen...
...Real-estate developments like Maple Creek and Castle Grande were far larger than Whitewater and Gold Mine Springs, and may conceal more...
...McDougal and Whitener formed a limited partnership called Whitener and Associates...
...The road incidentally will open the rest of the tract to development, boosting its value ten-fold...
...The flurry of activity produced a "supervisory agreement," a relatively mild form of probation...
...Half awake, he heard a woman's voice with a "foreign" (i.e., northern) accent...
...They made like they never heard of McDougal," he said...
...Are they a legitimate concern for public policy, and multiple federal investigations...
...As a student at the University of Arkansas, Hale was president of the campus Young Democrats and a member of the executive committee of the National College Young Democrats...
...He keeps busy, building a new house nearby, tending a few head of cattle, and occasionally putting together projects in his tool shed...
...The press, and the public, are asking if something in those files could have caused a sensitive man to take his life...
...He immediately pumps up deposits by offering the highest interest rates around...
...One bit of evidence was available to those who kept their eyes open on the pilgrimage south of Flippin to Whitewater...
...And sometime in 1985, McDougal made Whitener and Associates vanish entirely from the records of Madison Guaranty Savings and Loan...
...The special counsel can pursue it through the Madison Real Estate account at Madison Guaranty (Number 3-311-596...
...Tax records are puzzling...
...Staying long after hours as three or more reporters lined up in the waiting room, he and his wife Rosalee, a pretty frosted blonde, explained that he actually paid $33,250, not $2,000, for Tract 7."Jim had a problem with revenue stamps," he said...
...Freddy says he had known McDougal when they were in school, but didn't see him again until 1983, when McDougal came back home...
...Even the Whitewater Development Company account shows an overdraft of nearly $18,000 on November 5, 1984, partlycovered over the next week by loans noted to Flowerwood Farms, another McDougal development, and Madison Marketing, Susan McDougal's ad agency (sometimes called Master Marketing...
...Freddy hesitated to take it on, until he met James McDougal...
...Typically, a buyer would make a small down payment on a sales contract, which might or might not lead to full sale later on...
...The special counsel might want to ask...
...Whitener has quite a story to tell about his involvement with McDougal and Madison Guaranty, a story supported by extensive documents...
...In 1985, McDougal completely removed it from Madison's books, later telling examiners he had sold his share in the partnership...
...Just how far was Clinton willing to go for McDougal...
...It was this quality that made him central to the financial problems of the Clinton-TuckerMcDougal circle, and made him their designated fall guy...
...It came from the bank of Kingston, then recently purchased by McDougal and Stephen Smith...
...Armed with these questions, reporters would pile into their rental cars and take the short jog down Route 62, past tin-roofed farms and a striking valley vista, to Flippin, where Wade's Ozark Realty Company sat at the main crossroads...
...It's a plausible performance and a better defense of the Clintons than anyone at the White House has mounted...
...also fell into the role of McDougal's lender of last resort...
...In 1979, Hale also set up a Small Business Investment Corporation, a private lending company backed by the Small Business Administration...
...The large brick facade of the Rose firm's downtown headquarters, a former YMCA, housed some of the best lawyers in town...
...Strange as the real-estate plans might be, McDougal didn't need them to work to make a profit, at first...
...The RTC took the home during a cold week in January 1991, giving Freddy forty-eight hours to get out...
...Then one day, McDougal invited Freddy to lunch...
...The speculation may be deeply painful to Mr...
...When they came in the house, there was ice on their hair and everything," he said...
...McDougal denies that Clinton was at any meeting with Hale, and the White House press office says Clinton has no recollection of talking to Hale about a loan...
...The Federal Home Loan Bank Board (FHLBB), modeled on the Federal Reserve with thirteen regional banks, sent out the examiners...
...The nation is just now emerging from a recession intensified by the near collapse of the thrift industry and the severe weakening of banking, which in turn resulted from the extremely unwise legislation of the late seventies and early eighties...
...The 1986 examination complains that the checking accounts for Madison Real Estate and Madison Marketing were never recorded on the books of the Madison financial service corporation...
...Lawyers and Regulators It would be bad enough if Clinton used the powers of his office to enhance the value of his real-estate speculation...
...Freddy remembers how his children and the preacher helped carry his furniture up the hill in a sleet storm...
...If this is the legacy of Whitewater, we will all wind up feeling like Freddy Whitener...
...It took place by the University Plaza Mall in Little Rock...
...Hale has a highly unusual personality for someone playing the chief accuser in a national scandal...
...Development plans and construction schedules didn't exist, and cost estimates, again, were based on McDougal's "experience...
...After their divorce, she moved to Los Angeles and worked for four years as the personal bookkeeper for the conductor Zubin Mehta...
...As a last resort he can argue that the financial shuffles occurred ten or more years ago, and that the furor distracts from his real work...
...Records of Madison Financial, the service corporation, haven't reached the public...
...Ozark Air was a partnership run by Chris Wade...
...The deal roused McDougal's ready enthusiasm and by the end of the meal he had talked Freddy into launching a development called Gold Mine Springs...
...The Mehtas are now suing her for allegedlywriting 300 unauthorized checks totaling nearly $200,000 for personal restaurant and hotel charges, and she recently pled innocent to state embezzlement charges in California...
...A state geologist once called the sales office to complain about the reference to gold mines in the development's name...
...It was dated April 3, 1986, and deposited without an endorsement, with a stamp saying, "Guaranteed by Madison Guaranty Savings and Loan Little Rock...
...McDougal said heimmediately ordered Hillary's Rose Law Firm to receive a retainer for that amount, although other versions say the payments went directly to Hillary...
...One of his employees, John Latham, the bank's chief executive, went to jail briefly on the same charges...
...He reminded Bassett that Madison had a capital problem...
...If McDougal defaulted on the loan, which seemed likely, the Stephens empire technically would own Madison Guaranty...
...McDougal's ex-wife Susan, a sexy brunette nearly two decades his junior, shares a tendency for financial scrapes...
...Two of his children remembered seeing one of McDougal's agents sitting in the sales office practicing Freddy's signature...
...McDougal himself reported that Clinton solicited Madison Guaranty business for Hillary...
...The whole development was made possible because a state agency controlled by Clinton had built a road there...
...He draws a lot of money from Wall Street by marketing "Jumbo CDs" of close to the $100,000 maximum backed by federal deposit insurance funds...
...Independent counsel Robert Fiske acknowledged a possible connection when he announced that his mandate would include an investigation of the suicide...
...A former member of McDougal's circle says, on the other hand, that Clinton used to pick up the check on his morning jogs...
...This proposal has galvanized U.S...
...The second was the revelation that White House aides entered Foster's office soon after his death and removed files dealing with the Whitewater Development Company...
...Campaign records for the event are missing from the Pulaski County clerk's office and may never have been filed...
...A chicken wire pen in the front yard holds a yearling deer that one of his sons found newborn in the woods...
...Foster's friends and family, but the Clintons have egged it on with their extreme reluctance to release the files...
...Clinton and in fact bore Massey's secretarial notation, Bassett addressed her reply to "Dear Hillary...
...He ran his savings and loan just like the hundreds of other predatory highfliers of the early 1980s, when criminality infiltrated a large segment of the nation's financial structure...
...He shows off a bright yelThe American.Spectator February 1994 49 low go-cart that he constructed for his youngest son two Christmases ago, piecing together parts from a tractor, a motorcycle, and two sit-down lawn mowers...
...874, in north-central Arkansas...
...The next day, Wade sold it to M. T. Bronstad, Jr...
...In an interview with William Rempel and Douglas Frantz of the Los Angeles Times, the former thrift owner said that Clinton showed up at his Little Rock office one morning in late 1984, winded and sweaty from his jog...
...When we talked about how to structure it, Clinton explained that his name could not show up anywhere...
...But as often happened with thrift regulation that year, the results fell far short of the concerns...
...This check was cut less than two weeks before a fundraiser for Clinton that has recently aroused a great deal of interest...
...I'm not used to being treated like dirt," he said...
...As for the mysterious no-cash transfer in 1985, he said it was a simple swap...
...He says that the defaults on his more than half million in lending to the McDougal circle helped sink his investment company...
...J. D. Davis, the elderly contractor who was the first settler at Gold Mine Springs, let her use his duck pond as a backdrop and vividly remembers her haughty demeanor as she drove up with the horse trailer and left without saying a word to him...
...Freddy doesn't dodge responsibility...
...It would also explain why the new management at the bank suddenly cut off Whitener's credit and then, when he complained, pretended they had never heard of him...
...Were they backdated to save Bassett the embarrassment of signing orders she had drafted as Madison's lawyer...
...In the mid-eighties, before it went bankrupt, the Federal Savings and Loan Insurance Corporation (FSLIC) backed all thrift deposits...
...Wade signed over the airplane, a Piper Cub, and took the lots and mortgage...
...Freddy can't remember exactly how many years he lived in the now-empty house...
...Shortly afterward, says Hale, McDougal met with him again and said something like "we're going to need your help...
...This evidence, some of which the federal government has forgotten that it has and some of which it so far has refused to hear, shows a pattern of corruption every bit as damaging as the White House seems to fear...
...The status of both these loans might be a fruitful inquiry for the special counsel...
...This is the question raised by Clinton's friendship with McDougal...
...When the RTC closed Madison Guaranty in 1989, one of the hundred minor perpetrators in the half-trilliondollar Saving and Loan debacle, Freddy learned that the thrift claimed to have loaned him not the $400,000 he could account for, but a total, of $1.6 million...
...although there had been some on the site, they were played out, and he threatened to complain to the state attorney general about false advertising...
...There was Webb Hubbell, now at Justice, William Kennedy, now assistant White House counsel, Vincent Foster, and Hillary...
...He never received a reply...
...One of his first regulatory appointments, Stanley Tate as acting president of the Resolution Trust Corporation, set a record for scandal...
...After the hour-long drive from Little Rock, you take the turn at Bradford's one stoplight, just past the auto repair shop with the stacks and stacks of used tires in front, and follow the country roads past the small farms and scattered one-story houses...
...Yet Whitener's financial disaster opens one of the best windows yet into a morass engulfing the president, key administration officials, and much of the Arkansas political elite from which they sprang...
...And the examiner-in-charge for the audit, Sarah Worsham, jumped ship, joining Madison Guaranty as a senior officer...
...The construction of the Ranchette ramp necessitated the paving of an access road from Highway 101, funded by Marine Fuel Tax funds...
...Hale's family was close to Arkansas's inner circle, and he entered politics himself when he was 18...
...No one else would buy it after the foreclosure, and Freddy winces as he notes all the repairs it now needs...
...The partnership had some advantages for Freddy...
...I've been told that if I don't apologize to you by midnight, I'll lose my job," he said...
...Many of them moved to Washington with Clinton...
...One check paid a $30,000 "commission" to the agent that Whitener's children had caught practicing Freddy's signature...
...Maybe the most depressing part of it all is that the Whiteners for a long time blamed themselves for the debacle, and that McDougal encouraged them in this...
...McDougal drew up papers making Freddy the general partner, which gave Freddy legal responsibility...
...But the strangest business comes in the Whitener and Associates checkbook, the Gold Mine Springs account that Freddy Whitener, the road-builder, entrusted to McDougal's agents...
...Then there is the matter of the large purchase of land from the International Paper Company, consummated by the Whitewater partners months after Governor Clinton backed special legislation giving International Paper a multi-million-dollar tax break...
...It funnels a "commission" of $30,000 into Madison Real Estate, a subsidiary of the thrift that a former officer said was used as a conduit for funds...
...T he pattern shows up in all the Madison Guaranty checkbooks that have reached the hands of investigators...
...McDougal's stock assignment turned out to be worthless...
...McDougal was running Fulbright's Little Rock office and became Clinton's mentor...
...The federal examiner cited one building that was bought by a Little Rock lawyer, who sold it to Susan McDougal's best friend, who sold it to Susan's brother, who leased it to McDougal for office space...
...The story is he roomed with Jimmy Carter at Annapolis...
...But the most suggestive check of all is number 239, dated March 22, 1985...
...Another went to Stephen Smith, Clinton's former administrative assistant, very likely to repay his outstanding loan at Madison Guaranty...
...I don't think Bill ever set foot in Whitewater," Wade says...
...Madison covered most of the massive overdrafts in the Whitener accounts on February 26 and 28, 1986...
...James Leach (R-Iowa) into scrutinizing Whitewater, on the grounds that Clinton is trying to make federal regulation as subservient to the executive as the Arkansas Securities Commission was...
...Hale recalls meeting McDougal as a student in Young Democrats, but he became actively involved with him through Jim Guy Tucker, Hale's lawyer at the time who had borrowed from Capital-Management for a local cable company...
...That's where I met him...
...The limited documentation now available shows the beginnings of a pattern...
...And when it emerges on the other side, it has to be seen as a new and entirely separate creation...
...Almost as soon as the ink dried on the supervisory agreement, Madison Guaranty began peppering the state securities commission with requests for approvals of its land deals...
...By chance, says Whitener, he had a map of the proposed real estate project on his dashboard, and took it in with him...
...Massey's assignment was to win approval for McDougal's plans to bring fresh money into Madison Guaranty...
...But the letter was signed simply "Rose Law Firm...
...In a handwritten May 5 note, he recommended to Bassett that one of their own attorneys should review the matter and issue a legal opinion...
...No one denies that Hillary started drawing the $2,000 retainer, although White House press secretary Dee Dee Myers denied that Clinton had anything to do with it...
...A consolidated regulatory system under the control of the White House could bring back the worst days of politicization, without the checks that inter-agency rivalry provided on some of its excesses...
...The thrift struggled along until 1989, when the renovated federal savings and loan regulators turned it over to the new chartered Central National Bank...
...The pattern was thoroughly familiar...
...By all accounts, McDougal doted on his wife...
...Hale was indicted on September 23, 1993, on charges of defrauding the Small Business AdMinistration, based on his allegedly misrepresenting a loan to his company as paid-in capital so that he would be eligible for increased financing from the SBA...
...On January 16, 1985, the 32-yearold Beverly Bassett replaced Lee Thalheimer as Arkansas's securities commissioner...
...A former Madison Guaranty officer acknowledges that overdrafts were part of the business plan for Madison Financial Corporation, the "service corporation" that funneled loans to most of McDougal's deals...
...The FDIC examiners were watching Madison Bank and Trust, the small bank in Kingston that McDougal bought in 1980...
...These are always popular because of the high interest and the risk-free government backing...
...As Whitener got deeper into the road building, McDougal suggested that his thrift take over all the bookkeeping and payments, and Whitener gave him physical control of the partnership checkbook...
...A new federal examination was pending in early 1986...
...In America's patchwork system, a legacy of Jacksonian distrust of central banking, state-chartered banks and thrifts, such as Madison Guaranty, are controlled primarily by state government...
...But the stock was never issued, and the condition of The American Spectator February 1994 55 Madison Guaranty grew ever more desperate...
...In his early fifties, Freddy is tall and lean, with gray hair and a short salt-and-pepper mustache that he often strokes reflectively...
...T he RTC took Freddy's home in the aftermath of its seizure of Madison Guaranty Savings and Loan, the failed thrift owned by President Clinton's friend and business partner, James McDougal...
...James McDougal was tried in 1990 on eight bank fraud charges in connection with Madison Guaranty, and acquitted...
...At the least, these paper trails go through many more steps than we can guess at, and The American Spectator February 1994 103...
...Checks on the Madison Guaranty account, the one with the large overdrafts, were signed by Jim McDougal, although the handwriting belongs to at least two separate people...
...After McDougal had been forced out of Madison, he dropped by Hale's office to try to settle his loan by signing over his stock in the thrift...
...If one man broke open the Whitewater scandal, it was David Hale, a soft-spoken 52-year-old political insider...
...You could tell he was perturbed or upset," Hale says...
...Freddy's business career reads like an episode of "The Honeymooners" written as tragedy, a working man's dream for the big break gone sour...
...Even so, one account held an overdraft of more than $115,000 for eighteen months thereafter...
...This account, which paid bills for Hillary Clinton, pales next to the hundreds of thousands overdrawn against Whitener and Associates, but neither may match the action in the Madison subsidiaries directly controlled by Jim McDougal...
...Campaign contributions, and occasionally the offer of lucrative business opportunities, bought them access to senators, congressmen, and state office holders so that when the regulators grew bothersome, a phone call or strategic meeting could take them off the case...
...The curiosities continue in November, with post-election payment of invoices to Susan McDougal's ad agency...
...In a sample of Arkansas business standards, the secretary of 101 River was also the president of Citizens Bank and Trust in Flippin, a small bank that lent the two couples their mortgage...
...As in Jean Piaget's studies of infant perception, the object has to be seen as physically disappearing when it goes under a rug...
...On April 4, 1985, McDougal sponsored a gathering in the lobby of Madison Guaranty in Little Rock to help retire $50,000 Bill and Hillary had borrowed to donate to the campaign...
...When the regulators cracked down on deposit growth, as they did in mid-1985, McDougal had a problem common to all financial frauds...
...The access to Whitewater is several miles of a one-lane country road whose rusty asphalt was laid down by the Arkansas Game and Fish Commission...
...In an interview with the Washington Post several months ago, Susan McDougal said the two couples shared "an unbelievable relationship...
...One of the alleged contributors told the Washington Post he never made such a donation...
...Clinton plopped down in McDougal's new leather desk chair and started complaining about how hard it was to make ends meet...
...After years of back-breaking labor in construction, spending months from home on pipeline projects, he started building roads around his hometown and took a fling in real-estate development...
...Clinton saw Hale and came running over...
...In 1985, Whitewater unloaded twenty-four unsold lots (out of the forty-four total) on an outfit called Ozark Air Services, Inc., for no cash at all...
...The thrift examiners scheduled a special examination of Madison Guaranty...
...n the simple matter of paying bills, for example, Wade was surprised to learn that Whitewater Development kept more than one checking account...
...When the Resolution Trust Corporation, the S&L clean-up agency, started to renew its investigation of Madison Guaranty last year, Hale began to receive disturbing warnings...
...On January 22, she signed cover letters mailing out the approvals...
...This is the point at which, according to one major witness, Bill Clinton jumped personally into the septic tank...
...For a possible explanation, it's worth having another look at those checking account overdrafts...
...In addition to items pertinent to the charges against Hale, the search inventory also listed the files for the 1986 "clean-up" loans, including the $300,000 to Susan McDougal's Master Marketing...
...Why would Clinton, who is not known for excessive loyalty to old associates, stick his neck out for McDougal...
...Jim was always very considerate towards us," Freddy says, but no one will say the same about Susan...
...Freddy himself took out a car loan...
...Some of these disasters cost the taxpayer fifty times more than McDougal did, but on his own scale, he was as much a part of the breed as were Charles Keating, Don Dixon, or David Paul...
...Late last year, RTC investigators discovered that some $12,000 of the sum was in the form of cashier's checks from Madison...
...But he can't understand why the RTC or its big-time Little Rock lawyer never wanted to hear it...
...But curiously, the formal orders were dated September 15, 1984, and signed by Thalheimer...
...t was around this time that Hale learned that McDougal's "political family" definitely included Bill Clinton...
...Greg Young, chief financial officer from October 1984 to July 1988, told The American Spectator that the overdrafts were "tantamount to Madison Guaranty making an investment in the service corporation...
...By the time McDougal dissolved the partnership, in January 1986, Gold Mine Springs was facing foreclosure by the original land owner...
...The "Special Limited Examination" concluded that "the viability of the institution is jeopardized" and warned that honest bookkeeping would show it was insolvent...
...Jim McDougal asked if I could meet with the governor at Castle Grande after work," Hale said...
...Senator J. William Fulbright...
...That October, Hillary received a loan of $30,000 to build a demonstration house at Whitewater...
...This was the mechanism by which, in the eyes of the Federal Reserve, the infamous BCCI had taken control of Clark Clifford's First American Bankshares...
...One final element made the thrift frauds work...
...The string of apparently inflated closing costs mentioned earlier started on September 26, 1984, and continued through the middle of October...
...Later that evening the highly perturbed geologist called Freddy with an abject apology and asked him to report the call to McDougal...
...As the critics describe it, a developer with lots of raw land along a major river will donate a waterfront parcel to the Game and Fish Commission for a boat .ramp...
...He says he worked on it sixteen days and sixteen nights, to keep his mind off his troubles...
...Neither Bassett nor Thalheimer returned calls to explain this anomaly...
...He was astonished at what he found...
...Many of the sales went to McDougal's in-laws and other straw men, who paid for their lots with loans from Madison Guaranty...
...The memo sparked a flurry of activity...
...When Hale walked in the office, he remembers that Clinton and McDougal were talking about Frank White, the Republican who beat Clinton in 1980 and was contemplating a second run in 1986...
...Hale vividly recalls his last meeting with Clinton, about ninety days later...
...A local real-estate dealer watched his success and tried to talk him into doing the same with several thousand acres...
...The brothers Wilton ("Mr...
...These are checks for more than $21,000, more than $9,000, and nearly $15,000 for lots (continued on page 103) The American Spectator February 1994 57 BEYOND WHITEWATER (continued from page 57) that Freddy Whitener estimates were worth no more apiece than $1,500 to $3,000...
...There were unexplained checks for thousands...
...He started building it himself early in his 37-year marriage to his bright, petite wife Dorothy...
...Selig was a member of now governor Jim Guy Tucker's law firm, Mitchell, Williams, Selig, Jackson & Tucker...
...One of the major shareholders of this bank was Christopher V. Wade, owner of Ozark Realty Company and Jim McDougal's real-estate broker...
...Although Bassett's former firm was firmly embedded in the Little Rock political family, Rose was big time...
...To this day, Hale says, he doesn't know what Clinton was referring to...
...Clinton said, 'Have you heard what that f---ing whore 56 The American Spectator February 1994 Susan has done?' " Hale hadn't heard, and Clinton rushed off without explaining...
...During the presidential campaign, Clinton harshly criticized bank regulators in a New Hampshire swing and then dodged subsequent questions...
...A bright go-getter comes home and takes over the sleepy local thrift...
...Hale says Tucker invited him to meet at his law office after work one day...
...Ozark Air Services continues to pay the tax bill on the others...
...Although designed to give disadvantaged businessmen and women access to credit, his Capital-Management Services, Inc...
...In fact, no matter what turns up in Whitewater Estates, the most significant revelation may be the most obvious one, that Clinton was business partner of the owner of a corrupt and failing thrift...
...Yet, according to a former officer, the overdraft pattern was even more endemic there...
...Jim said we'll put it in Susan's advertising company," Hale said...
...What he meant I don't know...
...This is news to Freddy, who has papers showing that the partnership was not dissolved until 1986...
...What was the money doing in the meantime...
...Researching the thrift stock, Hale discovered that McDougal had already pledged it as collateral, when he originally bought Madison Guaranty...
...Hale says he'd had no indication that the thrift was in trouble...
...Freddy reports that in December, when he was wavering about telling his story, his phone rang around 5:30 a.m...
...Smith had been president of Madison Bank and Trust and moved over to vice chairman of Madison Guaranty...
...one of the original buyers, a contractor, had won a suit to claim tens of thousands of dollars in promised payments and the return of his lot, and the new management of Madison Guaranty was pretending it never heard of Whitener and Associates...
...Keating, the Arizona thrift owner who cost investors and taxpayers more than $2 billion, could get five senators to breathe down the neck of the Federal Home Loan Bank Board...
...o understand Hillary and Bill's subsequent role, we T have to take a look at McDougal's standing with the regulators...
...Although McDougal never bragged about his friendship with then-governor Bill Clinton, he clearly could pull strings to keep Freddy from trouble...
...T he appointment of Robert B. Fiske as independent counsel with a broad mandate brings a new level of permanence to the Whitewatergate scandal, Bill and Hillary Clinton's involvement in a relatively small real-estate development in the Arkansas Ozarks...
...He decided to boost it by the unprecedented measure in Arkansas of issuing non-voting preferred stock, which would bring him more capital without diluting his control...
...You have been selected," he says an unidentified friend told him, meaning that he would be the scapegoat to be sacrificed in the scandal...
...In mid-1979, minutes of the commission show it accepted a donation of land near Whitewater Estates...
...It was as if the Whitewater partners had altruistically decided to let their real-estate agent take all the profits...
...Shortly after the warrant was issued, Foster's office received an unexplained call from the Rose Law Firm...
...The federal audit began on February 28 and produced a scathing report (parts of which were quoted earlier...
...Hale says he met Clinton again in early 1986 but no later than February 28...
...He appointed two old-line commissioners who promptly fired the independent director of Game and Fish...
...But there were strange things in the land transfers, particularly on Tract 7. Sitting on the junction of Crooked Creek and the White River, this parcel was the largest and apparently the choicest in the subdivision...
...In one month, Madison officers wrote checks of more than $60,000 for "closing costs" on parcels whose total value didn't even reach that amount...
...The big-time highfliers like Charles Keating and the Texas thrift owners devoted a portion of their gains—and only a small portion was needed—to winning political friends...
...When he's sitting in the attorney general's office," McDougal assured Whitener, V11 be sitting in the governor's office...
...The implication was that Hale had to help clean things up for members of the political family...
...And there Wade, a puffy six-footer in a baseball cap and rumpled striped shirt, would dissolve their suspicions...
...Letters came from another member of the firm, Beverly Bassett, whose brother Woody was one of Clinton's campaign finance chairmen...
...Capital-Management Services, Inc...
...More sensible bookkeeping would have shown that the thrift was losing money almost from the beginning...
...In 1978, when Clinton was Arkansas attorney general and making his first run for governor, the McDougals and Clintons joined in a real-estate venture, the now famous Whitewater project...
...During the presidential campaign, the Clintons had deflected a brief flurry of interest in Whitewater and McDougal by commissioning a report from a friend and later appointee arguing that they had made no money from the deal...
...It's certainly a reasonable hypothesis that the $30,000 commission check is part of this money trail...
...It may have been concern about McDougal's mental state, and the deterioration of his marriage to Susan, that prompted Chris Wade to ask Hillary Clinton to seek power of attorney from them in November 1988...
...The two cooperate, say their critics, in their primary business of building roads...
...Witt backed Clinton, but died in 1991, just before his biggest investment paid off...
...His part of the meeting lasted ten to twenty minutes, and he left them still talking...
...The lawyer who made the first purchase was Jim Guy Tucker, now the governor of Arkansas...
...To keep Madison Guaranty afloat, McDougal had to pretend he had money that he didn't really have...
...M cDougal can't be excused as the victim of a pretty, voracious wife, however...
...It got worse...
...The American Spectator has received records indicating there were at least three such accounts, in separate banks...
...That's not the end of the world, but you can see it from there," he says...
...Thalheimer kept asking for more information on that deal and on the Campobello partnership...
...The former head of the 1984 examination, Sarah Worsham-Hawkins, took over Madison Guaranty...
...Some of the most curious transactions take place in Octobers of even-numbered years, that is, just before elections...
...I asked him how much he needed, and Clinton said, 'about $2,000 a month,' " McDougal told the Times...
...McDougal asked a number of questions about Hale's SBIC, particularly about how much it could lend him...
...But gracious and open as the Wades are with reporters, they speak with a nervous edge in their voice...
Vol. 27 • February 1994 • No. 2
